“Gift Inter Vivos” is a specific type of life insurance policy designed to cover potential inheritance tax (IHT) liabilities on gifts made during one’s lifetime.
When someone gives away a significant gift, such as a large sum of money or property, and they die within seven years of making that gift, the recipient may be liable to pay inheritance tax on it. This is because the gift is considered a “potentially exempt transfer” (PET). If the donor survives for seven years after making the gift, it becomes fully exempt from IHT. However, if they die within this seven-year period, the gift may be subject to IHT on a sliding scale.
A “Gift Inter Vivos” policy is taken out to cover this potential IHT liability. The policy lasts for seven years and decreases in value over that time, in line with the tapering relief from IHT on the gift. If the donor dies within the seven-year period, the policy will pay out an amount to cover the IHT due on the gift.
This type of policy is particularly suitable for individuals who are gifting significant assets and want to ensure that their loved ones won’t be left with a hefty tax bill should they pass away within the subsequent seven years.
